We all know “those people”. The people that are millionaires but it’s inconceivable that they would be. The common perception of a millionaire is someone with an important job. A partner or owner of a firm. A CEO/CFO of a company. Maybe a really successful sales-person who you know has the gift of gab.

Many of the people listed above will be financially successful, but what about the neighbors or relatives who had good solid jobs but nothing that would scream making $300K+ a year? And yet you’ve gleaned they are very comfortable financially. How did they do it?

Having spoken, grown up with, and been mentored by these people, there are two very simple ways:

They purchased their house, held onto it and didn’t use it as an ATM by doing cash-out refinances. Say they bought their house for $200K 30 years ago. That house, compounded at 5% is now worth almost $900K and paid off

They utilized their company-sponsored 401k or related savings vehicle to save every single month

This of course also required them to be cautious about their spending habits, but spending is a topic for another day. Let’s discuss 401k saving in some more detail:

Using Your 401k

The 401k (or 403b or another savings vehicle your employer allows) is going to be the most important savings vehicle you have. For the simple millionaires discussed above, they almost certainly saved at least $5-$6K/year in this…or around 10%-20% of their average salary over a 40-year period.

$6K a year for 40 years at a 7% return is $1.2M. And there it is $1.2M + $0.9M house (paid off) gives you a multi-millionaire. In reality, the market return was much better over this period so their savings are closer to $2M+.

Can your path be the same? Yes, but you need to save more than they did unfortunately

Why do you need to save more than the previous generation?

First, inflation eats away at your savings. Things will cost more in 20-30 years, likely more than double what they cost now.

Second, the market returns over the last 40 years were quite good…both stocks and bonds. Those conditions are unlikely to be the same over the next 40 years.

Third, you are likely to live longer than previous generations given advances in healthcare

Fourth, the safety nets we currently enjoy, such as Social Security, are going to be modified

So if you want to retire with, say, $3M in savings + your house, how much do you need to save? Roughly $20K/year for a 30-year old at a 6% return. Luckily that’s just about the max the IRS let's you save in your 401k ($18K per year before your company match). These numbers change depending on your age, when you are going to retire and your spending, but the point is the time to start is now. The older you are, the more aggressive you need to save to get to your number.

Not sure what your number is? We'd be happy to help you calculate it. Just reply to this email and let us know.

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Fortis Capital Management LLC (“Fortis”) is registered as an investment adviser in Washington, California and Texas. Numerous Fortis clients reside in other states in which Fortis is exempt from registration. Fortis will not provide investment advice for compensation or affect transactions in securities in any state in which it is not registered or exempt from registration.